The Clear and Present Danger Chronicles: Goldbugs, GOPsters, The Ryan, and Oh Dear FSM Are They Really That Dumb?

I really have to get on with my day job, so I’m going to try to avoid the blogging itch as much as possible over the next while. But I just can’t stop myself over the latest GOP flirtation with goldbuggery.

Paul Ryan, that intellectual powerhouse, the brilliant force that so-kicks-liberal-ass-in-the-gym-and-in-the-head-so-there is on board. He might try to defend himself by saying that he supports basing US currency not on gold per se, but on a basket of commodities.

But as Yglesias points out, that’s a distinction without a difference. And it’s not even really true. Dave Weigel notes that Ryan himself locates the root of his thoughts on currency to yet one more bit of Ayn Rand undigestible prose, the Francisco d’Anconia speech in which Rand’s “character”* declares

“It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor – your claim upon the energy of the men who produce.”

Just to pause on the deep, limpid, unruffled well of stupid required to advocate a gold coinage in place of folding money as an instrument of daily exchange, consider this. At this week’s prices the lightest US coin, the dime, would, if made of gold, be worth around $120. A gold quarter would run over $300. I know that no one — not even the most whacked out GOPsters I’ve been able to find — actually expects us to walk around with socks full of gold dust to trade, but given Ryan’s declared love of this particular passage of Randsanity, I think it worth noting that the reason folks outside the asylum don’t ever take Rand seriously is that the stuff is absurd on every level. It’s turtles all the way down.**

As you can tell from the linkage above, the whole notion has come in for the a surfeit of ridicule, astonishment, and a general reminder from lots of folks about just how radical, reckless and plain dumb is the GOP, Ryan and Romney approach to the real world. Ezra Klein’s take is a fine place to start.

So no need to repeat what others have said on this: if you can’t figure out why the gold standard is such a crap idea, then I’m not going to make any more impact on you than any of the rest of experience.

Instead, I want to pose a choice. If one were to think about national problems, who should one trust: Paul Ryan or Benjamin Franklin?

Here’s Franklin, writing on the need for the Commonwealth of Pennsylvania to issue paper money to make up for a shortage of metal coinage. First up is a passage from near the beginning of his landmark pamphlet from 1729, The Nature and Necessity of a Paper-Currency:

All those who are Possessors of large Sums of Money, and are disposed to purchase Land, which is attended with a great and sure Advantage in a growing Country as this is; I say, the Interest of all such Men will encline them to oppose a large Addition to our Money. Because their Wealth is now continually increasing by the large Interest they receive, which will enable them (if they can keep Land from rising) to purchase More some time hence than they can at present; and in the mean time all Trade being discouraged, not only those who borrow of them, but the Common People in general will be impoverished, and consequently obliged to sell More Land for less Money than they will do at present. And yet, after such Men are possessed of as much Land as they can purchase, it will then be their Interest to have Money made Plentiful, because that will immediately make Land rise in Value in their Hands. Now it ought not to be wonder’d at, if People from the Knowledge of a Man’s Interest do sometimes make a true Guess at his Designs; for, Interest, they say, will not Lie.

No flies on Ben. Not to mention, the more things change…R-Money represents those with money, and everything he and his party advance should be viewed with that in mind.

And here’s Franklin’s conclusion:

Upon the Whole it may be observed, That it is the highest Interest of a Trading Country in general to make Money plentiful; and that it can be a Disadvantage to none that have honest Designs. It cannot hurt even the Usurers, tho’ it should sink what they receive as Interest; because they will be proportionably more secure in what they lend; or they will have an Opportunity of employing their Money to greater Advantage, to themselves as well as to the Country. Neither can it hurt those Merchants who have great Sums out-standing in Debts in the Country, and seem on that Account to have the most plausible Reason to fear it; towit, because a large Addition being made to our Currency, will increase the Demand of our Exporting Produce, and by that Means raise the Price of it, so that they will not be able to purchase so much Bread or Flower with £100 when they shall receive it after such an Addition, as they now can, and may if there is no Addition: I say it cannot hurt even such, because they will get in their Debts just in exact Proportion so much the easier and sooner as the Money becomes plentier; and therefore, considering the Interest and Trouble saved, they will not be Losers; because it only sinks in Value as a Currency, proportionally as it becomes more plenty. It cannot hurt the Interest of Great Britain, as has been shewn; and it will greatly advance the Interest of the Proprietor. It will be an Advantage to every industrious Tradesman, &c. because his Business will be carried on more freely, and Trade be universally enlivened by it. And as more Business in all Manufactures will be done, by so much as the Labour and Time spent in Exchange is saved, the Country in general will grow so much the richer.

Philadelphia, April 3. 1729.

Among his scary list of superlatives, I’d rank Franklin as the first and probably the most significant thinker on currency and finance British America produced (placing Hamilton in the federal era…). He was also, unlike both Romney and Ryan, a working independent businessman, someone who grew rich off actually making things. In his case that would have been the products of his printing shop, in which, inter alia, he turned out much of the paper currency issued by the mid-Atlantic colonies over a couple of decades. He experienced what tight money means on Main Street, and he understood very clearly who gained and who lost under different currency regimes. When money grows scarce, as he says clearly above, the few with hard cash get rich at the expense not just of the many, but of society as a whole.

As it was, so it will be.

Bonus smart guy on monetary policy! Here’s Isaac Newton on the use of paper and the merely notional solidity of metal money:

“If interest be not yet low enough for the advantage of trade and designs of setting the poor on work…the only proper way to lower it is more paper credit till by trading and business we can get more money.” Radically, he added that “Tis mere opinion that sets a value upon [metal] money,” adding “we value it because we can purchase all sorts of commodities and the same opinion sets a like value upon paper security.”¹

(Isaac Newton was not anti-commodity based money. He was in charge of the Mint as Britain moved from one metallic standard to another, swapping silver for gold. He remains a man of his time, not Franklin’s or the present day. Even so, he had a better grasp of the basics of monetary policy than almost all of his contemporaries — and too many of ours.)

So that’s it. Your choice. Bet on R-Money and Republican deep thinkers — or stand with Ben and my man Izzy — and, as Krugman reminds us, a couple of centuries at least of practical experience as well.

*I use scare quotes because it makes Cervantes and Defoe weep to think that centuries of the development of the idea of representing human experience in the novel have come to this hideous end.

**Yup. I do know that what I’m talking about is not the infinite regress problem properly. But I’m thinking this way: part of the issue with GOP craziness as it mainstreams is the layered nature of the crazy. You pull apart one absurdity only to discover the next, perhaps more fundamental one down. So it is here.

¹Newton quote as reported in G. Findlay Shirras; J. H. Craig, “Sir Isaac Newton and the Currency,” The Economic Journal, Vol. 55, No. 218/219, pp. 230-231. Self promotion alert: the passage above and Newton’s views on paper and credit are discussed in my book Newton and the Counterfeiter. It’s stuff like this that is the leaping-off point for my next book project.

3 Comments on “The Clear and Present Danger Chronicles: Goldbugs, GOPsters, The Ryan, and Oh Dear FSM Are They Really That Dumb?”

The best and clearest explanation I have read of why a fiat currency is a good idea, and a commodity-backed currency a stupid idea, is given in George Cooper’s excellent The Origin of Financial Crises.

Just to establish Cooper’s nerd-cred, let me mention that he likens the role of a central bank to that of an engine governor, then includes Maxwell’s groundbreaking 1868 paper On Governors as an appendix!